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Why Buy to Let Property is One Investment That Can Offer a Decent Return

30 April 2013

The last few years have been a tough time for many savers and investors. There are barely a handful of savings accounts that keep pace with inflation while the price of gold has plummeted in recent weeks. So, with the Funding for Lending scheme resulting in cheaper mortgages, more people are turning to buy to let property to maximise their medium to long term return.

The Independent reports that it is ‘no surprise, therefore, that property industry data show the number of private landlords is set to top a million in the next couple of years.’ So let’s look at the booming buy to let property mortgage market.

Access to mortgages and strong rental demand driving market

Recent figures from the Council for Mortgage Lenders show that buy to let lending is up 10 per cent on 2011. Many experts attribute this to the wider availability of investment mortgages through the Bank of England’s £80 billion Funding for Lending scheme. “This has had a material impact on lending by improving liquidity generally,” says John Heron, the director of mortgages at specialist lender, Paragon. “It has also put downward pressure on interest rates, which helps first-time investors.”

The second main reason for improved investment returns is the strong demand for rental property. Phil Rickards of specialist buy to let lender BM Solutions says: “We are seeing increasing tenant demand and a shortage of buy to let property. This may be due to first-time buyers opting to rent while saving for a deposit, or families looking to secure school places by renting properties in the catchment area.

“Inward migration is certainly a factor, with 500,000 people coming to the UK each year and few immediately becoming homeowners,” he adds.

Buy to let property can generate strong returns

Many investors are turning to buy to let property in an attempt to make their capital work harder. “The UK’s largest lettings agent recently reported that the average rental yield is 6.2 per cent per year,” says Islay Robinson, CEO of London mortgage adviser Enness Private Clients.

“This compares extremely favourably to savings accounts, stock market performance and other types of investment and so it’s no surprise that more people are turning to buy to let property. However, the lettings business can be a minefield for a novice investor and so we’d always advise a new landlord to speak to a high value mortgage expert before taking the plunge.”

With dozens of buy to let mortgages to choose from, speaking to a large mortgage broker can help you find the most appropriate deal for you. And then, there are plenty of legal and logistical issues to consider.

“Any landlord has about 70 pieces of legislation to comply with,” says Ian Potter, the managing director of the Association of Residential Lettings Agents (ARLA). “And then there’s managing tenants, handling rental and deposit payments and maintenance. This is a lot for any private investor to manage on their own.”

Your alternative to going it alone is to employ the services of a lettings agent. While these companies can help you with many of the issues associated with letting a property, they can charge up to 15 per cent of your monthly rental income. And, with no regulation in place, it’s important for you to choose an agent carefully.

“Landlords who use ARLA-registered agents have peace of mind knowing that should a tenant not pay, they are protected. It also works for tenants as it guarantees deposits comply with legislation and are held by a third party,” adds Mr Potter.

If you are interested in investing in buy to let property or to expand upon a current buy to let portfolio, feel free to contact one of our expert brokers for more information, or take a look at our buy to let guide below.

Important information

Enness Limited is directly authorised and regulated by the Financial Conduct Authority.

You can check our details on their public register through fca.org.uk using our firms’ reference number 565120. Registered address: Haskell House, 152 West End Lane, London, NW6 1SD. Registered in England and Wales under Company No. 07760090.

Enness International SARL is registered in Monaco. It is authorised to conduct activities relating to strategy, business development and public relations with regards to projects in connection with the Enness Group. It does not give banking or financial advice and the information contained on this website is not an invitation to buy or sell securities.

Enness Limited (DIFC Representative Office) is regulated by the Dubai Financial Services Authority (“DFSA”) as a Representative Office. It is authorised to conduct marketing of financial services and financial products offered from a location outside the DIFC in connection with the Enness Group. It does not give banking or financial advice and the information contained on this website is not an invitation to buy or sell securities.

IF YOU’RE CONSIDERING CONSOLIDATING DEBT AGAINST YOUR MAIN HOME, THEN PLEASE THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.